The W-4 Form

When you start a new job, one of the first forms you complete is the W-4 (Employee’s Withholding Certificate). The W-4 is given to your employer, not the IRS. It instructs the employer’s payroll system on how much federal income tax to withhold from your earnings.

Think of it as a control knob that adjusts the amount of tax prepaid throughout the year. Your goal is to have your withholdings match your actual tax liability (the total tax you owe for the year) as closely as possible.

• Withholding Too Little: Your paychecks (net pay) are larger all year, but you may owe a large amount at tax time in April and could face penalties. You don’t want this.
• Withholding Too Much: Your paychecks are smaller during the year. The government will hold onto your extra money and give it back to you as a tax refund in April. While it feels like a bonus, it’s actually just your own money coming back to you, interest-free. You do not want this either.

The best result is accurate withholding: You receive the highest possible paychecks and owe little (or nothing) when filing your taxes.

The more precisely you answer its questions about your income, filing status, and any other jobs or deductions, the closer your withholdings will be to what you actually owe, so take the time to fill it out right.